Building Trades, New York

With 421-a Construction Subsidy Expired, What’s Next?

February 3, 2016
By Steven Wishnia

By Request of our Readers We are Reposting a Special Report Part on Construction Subsidies 421-a

New York, NY – The 421-a housing construction subsidy, which gave an estimated $1.1 billion a year in tax breaks to developers who built new housing in New York City, expired Jan. 15 when the Real Estate Board of New York and the city’s building-trades unions couldn’t agree on what a fair wage would be for workers on buildings receiving the subsidy.

“Unfortunately, despite a good faith effort by all parties, REBNY and the Building Trades were unable to come to a final agreement on the renewal of a 421-a program that would provide good wages to construction workers across the city,” Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, said in a statement.

“We were kind of perplexed,” Assemblymember Walter Mosley (D-Brooklyn) told LaborPress Radio Jan. 27. “Who wasn’t willing to acquiesce and meet in the middle and come to some kind of amicable solution?” The unions, he added, had been willing to acquiesce on lower wages for less-experienced workers, “and that was something that was a major hurdle in negotiations.”

A prevailing-wage agreement was made the condition for continuing the 421-a program as part of the political deals that renewed the state’s rent-stabilization laws last June. Now, new legislation will be required to revive the program or create a similar tax subsidy.

Mayor Bill de Blasio and Gov. Andrew Cuomo have both identified that as a priority. “We’re certainly going to push hard for action in Albany,” the mayor stated at a press conference Jan. 18. The governor, at his own press conference the same day, called it “his biggest issue of concern.” The failure to reach an agreement on wages, he said, “means we right now have no affordable housing program that’s operating in the city of New York.”

Affordable-housing advocates, meanwhile, suggested that the end of 421-a would be an opportunity to create a more effective subsidy. “We’ve never particularly liked 421-a,” says Emily Goldstein, senior organizer at the Association for Neighborhood Housing Development, a group of about 100 neighborhood advocacy groups and nonprofit developers. “It’s a lot of money for very little return.”

The subsidy was not originally intended to encourage affordable housing. When it was created in 1971, its purpose was simply to stimulate construction and counter the wave of abandonment that was beginning to devastate the city’s poorer neighborhoods. As the real-estate market revived and boomed, however, requirements that a percentage of the subsidized units be “affordable” were added, first in the 1980s, for the southern half of Manhattan, and then in 2006, for neighborhoods including all of Manhattan, Williamsburg, and Long Island City.

Those requirements didn’t reach very far. ANHD estimated that less than 9% of the about 153,000 apartments built with the tax break in the 2013-14 fiscal year were “affordable” even by the loose federal standards, in which a $3,000-a-month two-bedroom apartment can qualify as “middle-income” housing. In 2014, the Real Affordability for All coalition looked at 61 buildings constructed from 2008 to 2012 in the area encompassing downtown Brooklyn, Prospect Heights, and Park Slope that received 421-a subsidies. It found that only 6 percent of the 4,395 apartments in them rented for below market rate, and only 31 were cheap enough for a family making less than $41,000 a year.

If the program had been renewed, the affordability requirements would have been extended to the whole city. That would have almost doubled the number of “affordable” units created, from 12,400 to 24,000, and lowered the average subsidy for each one from $573,000 to $427,000, according to the mayor’s office.

One catch is the federal standards for “affordability.” The Department of Housing and Urban Development defines it by a percentage of the “area median income”—but for New York City, that area includes the more affluent northern suburbs. That classifies close to half the city’s households as “low-income,” because they earn less than 60% of the area median.

“421-a failed to create enough affordable housing to justify the substantial tax breaks given to developers,” City Council Housing Committee chair Jumaane Williams said in a statement Jan. 18. “Whether it's a new version of 421-a, or something different, New York City must have a tax incentive program that encourages developers to build real affordable housing.” That, he added, means both requiring a larger proportion of lower-cost apartments and including some affordable to people who make less than $30,000 a year, as well as paying prevailing union-scale wages and providing “good jobs for local residents.”

If the 421-a program is truly defunct, says Emily Goldstein, that “is going to have a domino effect” on other affordable-housing programs. On the other hand, mayoral spokesperson Wiley Norvell says its loss won’t necessarily be catastrophic. “Last year, roughly 2,400 of the 21,000+ affordable units we financed were 421-a eligible,” he told LaborPress. “There are other programs the City can lean on to provide tax exemptions, where necessary, to produce/protect affordable housing, like Article 11s and 420-c’s.”

“We all know that something ultimately has to be negotiated,” Assemblymember Mosley told LaborPress Radio. Any subsidy program that replaces 421-a, he said, should follow two principles: one, “prevailing wage needs to be maintained,” so workers “can live in the city they’re trying to build,” and, two, that the housing subsidized “needs to be affordable to average New Yorkers.” Any compromise, he added, “cannot come at the expense of working men and women who are giving up something…. Are we willing to give up on the vast majority of New Yorkers in an effort to appease a particular industry?”

Part 1 of a two-part series. Part 2 will appear on Saturday January 30th.

February 2, 2016

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